In October 2021 the Victorian Government introduced a significant new tax payable by some Victorian landowners whose land is rezoned resulting in an uplift in the land value.
The Windfall Gains Tax Act 2021 (the Act) will take effect and impose the Windfall Gains Tax (WGT) from 1 July 2023.
What is WGT?
WGT will be a new tax in Victoria which is triggered on certain land when there is an uplift in the value of more than $100,000 as a result of its rezoning.
WGC is payable and calculated at the following rates:
|Uplift value||Tax rate|
|Up to $100,000||Nil|
|$100,000 – $500,000||62.5% of the uplift value above $100,000|
|$500,000 +||50% of the total uplift value|
Which land is affected?
Any land which is being rezoned, apart from those under an excluded rezoning may be affected by WGT should the rezoning increase the land value in excess of $100,000. An excluded rezoning, which does not trigger WGT includes:
- A rezoning to the Urban Growth Zone within the Growth Areas Infrastructure Contribution (GAIC) area; and
- A rezoning to a public land zone or between different public land zones.
Are there any WGC exemptions?
There are a number of exemption under the Act and these include:
- Residential land – where the land is used primarily for residential purposes is exempt, but only up to two hectares. The residential land does not need to be classified as a ‘main residence’ for the exemption to apply however, there must be a habitable residence on the land.
- Charities – if land remains as charitable land and is used exclusively for a charitable purposes for 15 years after a Capital Gains Tax event, any WGT is waived.
- Existing rezoning works – where certain applications to rezone were made prior to 15 May 2021, no WGT may be payable.
- Pre-existing contracts – rezoned land that is a subject of a contract of sale entered into before 15 May 2021 is not subject to WGT, even where the contract is not settled before the WGT event.
Who pays WGT?
The registered proprietor of the rezoned land is responsible for the payment of WGT. It is worth noting however that there are grouping and aggregation provisions under the Act which provide that the $100,000 threshold can apply only once to properties rezoned under the same planning scheme amendment and when owned by the same proprietor/s.
Can payment be deferred?
If a landowner is liable for WGT, they will be able to defer payment of up to 100% of the amount payable until the earlier of:
- 30 years after the rezoning;
- a dutiable transaction occurs in relation to the rezoned land (for example, a sale or transfer); or
- a relevant acquisition occurs in relation to the rezoned land (such as a change in the ownership structure, particularly where a company).
What is next?
If you have been contemplating or have commenced rezoning of your land, it is in your interests to do all things possible and provide all necessary information to have the rezoning take effect before 1 July 2023 to avoid WGT. Otherwise you may be required to direct a significant proportion of your profits to the State Government.
Nevett Ford actively assists property developers, investors and other participants in the property industry. Given the population growth and sprawl in Victoria, this WGT has the potential to affect many landowners.
This article is only intended to provide a simple limited overview of WGT and the implications arising from the introduction of the Act and if you have any queries regarding WGT, property development including rezoning or planning, please contact our Property and Conveyancing Team on 03 9614 7111 or email at email@example.com.